Subprime Auto Loan ABS Update

Transcription

1 Subprime Auto Loan ABS Update Amy Martin Lead Analyst Auto ABS Senior Director Structured Finance Ratings Copyright 2017 by S&P Global. All rights reserved. Annual Non-Prime Auto Financing Conference NAF Association Plano, Texas June 1, 2017

2 Agenda Size Of The Auto Loan And Subprime Auto Loan ABS Markets Subprime Auto Finance Trends Collateral Characteristics Of Subprime Auto Loan ABS Deterioration In Subprime Auto Loan ABS Collateral Performance (Vintage Analysis) Comparison of 18 Issuers To S&P s Subprime Auto Loan Static Index Subprime Auto Loan ABS Ratings Performance Remains Stable Outlook 2

3 Auto ABS Issuance Tracks Auto Sales U.S. Auto Sales, Auto Lease ABS Issuance and Auto Loan ABS Issuance Auto Lease ABS Issuance ($ Bil) Auto Loan ABS Issuance ($ Bil) Auto Sales (Million Units) $ Billion Est Auto Sales (Million Units) 3

4 Subprime Dollar Issuance % Of Total Retail Auto ABS $25 $23.3 $ % $20 $21.6 $16.3 $18.4 $17.6 $ % 30.0% Billion $ $15 $ % 20.0% $10 $8.7 $ % $5 10.0% $2.2 $ % $ YTD 0.0% Issuance ($) % of Total Dollar Issuance 4

5 Top 3 Subprime Issuers As a % of Subprime Auto Loan ABS 100.0% 95.0% 90.0% 100.0% 90.6% 95.3% 89.7% 85.0% 80.0% 75.0% 72.1% 79.2% 73.7% 70.0% 65.0% 67.1% 65.3% 66.8% 60.0% 57.6% 55.0% 50.0% Capital One AMCAR AMCAR AMCAR Santander Santander Santander Santander Santander Santander Santander ($7.2 bn) ($9.8 bn) ($6.7bn) 2 AMCAR Capital One CPS DriveTime AMCAR GM Financial GM Financial GM Financial GM Financial ($4.2 bn) GM Financial ($4.4 bn) GM Financial ($4.9 bn) 3 HSBC Drive Santander CAC Pres6ge DriveTime DriveTime CPS Exeter Exeter ($1.7 bn) Exeter ($1.4 bn) Flagship ($1.6 bn) 5

6 Subprime Auto Loan ABS Transactions, $23.07B Santander & Drive, 29.2% Honor, 0.4% Sierra, 0.6% JD Byrider, 0.5% Tidewater, 0.7% GLS, 0.9% UACC, 1.4% GM Financial, 21.2% First Investors, 1.9% Prestige, 2.8% OneMain, 3.0% CAC, 3.0% UACC United Acceptance Credit Corpora0on CAC Credit Acceptance Corpora0on CPS Consumer Por6olio Services ACA - American Credit Acceptance Flagship & CarFin, 7.1% Westlake, 7.0% DriveTime, 6.6% CPS, 5.2% ACA, 3.7% Exeter, 4.8% 6

7 Subprime Auto Finance Trends Industry has remained intensely competitive. In response some lenders liberalized their credit standards, loosened verification requirements (POI), and lowered their pricing requirements. Looser credit policies and lower discounts were competitive responses during prior intensely competitive periods. In our view, foregoing income verifications to the magnitude that has been reported in Reg AB II loan level filings started only 2.5 years ago and is isolated. Large lenders are using a risk-based approach to POI. Loan losses have increased for 2015 and 1 st half 2016 originations. Lower recovery rates have contributed to higher losses too. Lender profitability weakened in 2015 and 2016 with some reporting losses. More recently, some lenders have started to self-correct and are tightening their lending standards. 7

8 Subprime Collateral Trends (ECNL >7.5%) FICO Loan-To-Value (%) WAAPR (%) Q Q Q1 8

9 Subprime Collateral Trends (ECNL >7.5%) % of Loans With Original Term > 60 months Weighted Average Original Maturity Q1 9

10 Subprime Auto Loan ABS Performance Subprime Cumulative Net Losses (%) By Vintage Cumulative Net Loss (%) Q Modified Q Modified Modified 2015 Q Q Modified Q

11 Modified Subprime Cumulative Recoveries (%) Modified Subprime Cumulative Recoveries (%) Q Q Q (iv) Q (i) Q (ii) Q (iii) ( 11

12 2015 Cumulative Net Losses by Issuer - Subprime JD Byrider(CarNow) Subprime Index American Credit Acceptance AmeriCredit UACC CarFinance Percent American Credit Acceptance Drive CPS Drive Exeter First Investors Flagship 10 Westlake Exeter CarFinance Subprime Index Pres6ge CPS 5 SDART First Investors AmeriCredit Flagship - Months Pres6ge Santander (SDART) UACC Westlake JD Byrider(CarNow) 12

13 2016 Q1 CNLs by Issuer - Subprime ACA DriveTime UACC Subprime Index - Q American Credit Acceptance AmeriCredit 12 Drive CPS Drive Percent Exeter Subprime Index Westlake SDART AmeriCredit CPS Pres6ge First Investors Flagship Tidewater Exeter First Investors Flagship Tidewater Pres6ge Santander (SDART) incl. not rated UACC Westlake Months DriveTime 13

14 S&P-Rated IG Subprime Auto Loan ABS Are Well Protected AAA credit enhancement levels are high, often covering cumulative defaults of 85%-95% (with recovery rates ranging from 30% to 40%) % AAA C/E & ECNL Expecta0on on S&P Rated Transac0ons Auto loan ABS delever quickly and c/e levels as a % of the o/s collateral grow due to the sequential nature of the deals. C/E levels have risen in line with higher ECNLs (see chart) We ve been selective when deciding which issuers we can assign ratings to and whether we should cap those ratings given operational concerns % 40.00% 30.00% 20.00% 10.00% 0.00% Our rating sensitivity criteria prevents us from assigning AAA and AA ratings if they would be downgraded under a BBB moderate stress below AA and A, respectively, over 1 year and below BBB and BB, respectively, over 3 years. AAA' ini6al C/E AAA' break-even WA Original ECNL (those w/ AAA) 14

15 Subprime Auto Loan Rating Actions* Year Upgrades Downgrades YTD March 31, Total *The upgrades/downgrades do not include those based on ra6ng changes on the bond insurer, if any. All ra6ng ac6ons in the table are credit-related. 15

16 Subprime Auto Finance Outlook Lower used vehicle values will continue to put upward pressure on losses. Higher interest rates will impact borrowing costs and squeeze profit margins. Providers of capital, including warehouse lenders, will become more selective. Private equity investors are nearing the end of their holding periods and are looking for exit strategies. Consolidations and portfolio sales are likely to increase. History has shown us that these portfolios can be successfully transitioned. 2017/2018 will test whether lenders increase/decrease their use of risk-based income verifications. Reg AB II loan level reporting for public auto loan ABS has focused attention on this topic. Consumer regulatory oversight by various federal and state agencies could result in legal actions and monetary settlements against companies in this industry. Despite negative headwinds, THE SKY IS NOT FALLING. Historically after several years of loan growth and competition-induced weaker lending standards, credit losses rise and some companies fail. Well-managed companies tighten lending standards, secure adequate funding/liquidity, manage costs, focus on collections, remain compliant with all laws, and prepare for a rainy day. 16

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